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Unformatted text preview: ’s Cost Minimization Problem (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. To graph this iso-cost equation in a (
iso-cost line: The y-axis intercept is ) plot we note that maximum amount of is on the y-axis and re-arrange to get the equation of the the firm can use with a budget of maximum amount of the firm can use with a budget of ; the slope is ; the x-axis intercept is which means that at any bundle on the iso-cost line, if we hired another worker then for the cost of production to remain unchanged capital usage would have
to decline by units. For example, the following graph shows three iso-cost lines for budgets of
:
Iso-cost lines for Iso-cost line for
All bundles on his
line cost $150 Iso-cost line for All bundles on his
line cost $200
Iso-cost line for
All bundles on his
line cost $250 Notice that the y-axis and x-axis intercepts are proportional to total cost: iso-cost lines to the north east have a higher
total cost than iso-cost lines to the south-west. Now, back to the long run CMP example: The f...
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